Hines Closes on 27-Story First Tower High-Rise in Downtown Calgary

Posted Apr 17, 2018

11 APR 2018|GARRY MARR  Financial Post 

Calgary's hard luck office market isn't scaring off an international real estate firm, which said Wednesday it acquired the 27-storey F1rst Tower even though it is only 51 percent leased.

Houston-based Hines, along with a subsidiary of real estate funds managed by Oaktree Capital Management out of Los Angeles, bought the 708,354-square-foot high-rise in the downtown east submarket of Calgary, and is planning a major redevelopment at the building home to Encana, Telus and TransCanada.

A report this week from CoStar Research noted the overall office market vacancy rate in Calgary fell 30 basis points in first quarter of 2018 from the end of 2017, but is still up 70 basis points year over to 15.3 percent. That rate is expected to climb in 2018 with the delivery of Telus Sky, a 761,235-square-foot, mixed-use tower currently under construction at 7 Ave. SW and Centre St. in Calgary's central core, in 2018. The downtown vacancy rate is more than 21 percent.

Increases in the vacancy rate from a year ago are being driven by new supply and the fact that many tenants that pre-leased space are now putting the space they no longer require on the sublet market, according to CoStar Research. Net asking rental rates fell 1.1 percent in the first quarter from the end of 2017 and 2.2 percent from a year ago to $16.92 per square foot.

In the face of those numbers, Hines and partner Oaktree are pushing ahead with a significant upgrade to the property at 411 1st St., part of the +15-connected office building network that connects the city's core through enclosed walkways. The group is promising a "comprehensive redevelopment" of the 34,000-square-foot +15-level - something it feels will drive tenants to the building.

No price was disclosed on the transaction or how much will be spent on redevelopment.

Syl Apps, managing director for Hines in Canada, told CoStar News that the company has a long-term plan for the Calgary office market that looks beyond the current vacancy rate.

“We are big believers in the city,” said Apps. “The underlying thesis is a long-term bet on the city of Calgary. To some extent, we see the current conditions in the market as an opportunity to allow us to grow our portfolio in a way we might have not otherwise been able to.”

Hines has one other downtown office building in the city, Prospect Place at 505 2nd Street SW, and a handful of other development projects it is currently considering in the city. The development projects are mostly multifamily buildings.

While Apps wouldn’t comment on how much Hines will spend on redeveloping F1rst Tower, he did say the goal is to bring it up to a “Class A building” because the building is almost 40 years old.

He said the property was purchased from a couple of Canadian real estate investment trusts and pricing it today based on vacancy rates probably doesn’t reflect the true long-term value of the asset.

“We want to add value to the asset,” said Apps, conceding in the near-term it will be hard to lease more space in the building.

New space being upgraded will include a tenant lounge/collaboration area, a café and food service area with the possibility for a differentiated food hall concept, an outdoor terrace, a fitness and wellness centre and a modern, flexible conference facility.

Here's what a 27.7% vacancy rate looks like in downtown Calgary

Posted Apr 11, 2018

It's no secret that one result of the collapse of the price of oil four years ago was a dramatic emptying out of Calgary's downtown office towers as energy companies laid off thousands of people and a deep recession took hold in the province. 

Click here to learn more  https://bit.ly/2qnAadf


Choice Properties Buying CREIT in $6 Billion Deal to Create Canada's Largest REIT

Posted Mar 14, 2018

Choice Properties Real Estate Investment Trust has agreed to buy Canadian Real Estate Investment Trust in a $6 billion transaction they say will create the largest REIT in Canada with a combined enterprise value of $16 billion.

Toronto-based Choice Properties REIT said it would acquire all CREIT's assets and assume all of its liabilities, including long-term debt for $22.50 in cash and 2.4904 Choice Properties units per CREIT unit, on a fully pro-rated basis.

"We are excited to be creating Canada's leading diversified REIT. Choice Properties' expanded, diversified real estate portfolio, anchored by Canada's largest retailer, will provide unitholders of both Choice Properties and CREIT the opportunity to capitalize on the future growth and value creation opportunities of this strategic transaction," said John Morrison, president and chief executive of Choice Properties, in a statement. 

He told analysts he sees "tremendous opportunity" in the Choice REIT development pipeline. 

"We believe there is meaningful value creation in the portfolio," Morrison said during a conference call to discuss the merger. He pointed to 75 sites that have the potential for additional development. "The combined REIT has more than 60 sites primed for creating exciting residential-focused mixed use development."

The combined entity will have a portfolio of 752 properties made up of 69 million square feet of gross leasable area. Loblaw Companies Ltd. and George Weston Ltd. will have combined proforma ownership of 65%.

"This transformational acquisition leads to the creation of a real estate investment trust with resilient characteristics and adds value creation opportunities to Choice Properties' existing strong portfolio of retail assets," added Galen G. Weston, chairman and chief executive of Loblaw and GWL, in a statement. 

The companies say the combined entity will be Canada's preeminent diversified REIT. The retail portfolio, which will make up 78% of net operating income and is focused on what the pair call "necessity-based retailers" that makeup 85% of the retail assets. Industrial assets will contribute 14% of NOI of the combined REIT with office assets making up the remaining 8%.

Stephen Johnson, chief executive of REIT, said the combination also provides tremendous opportunity for Choice Properties to capitalize on the firms' combined development pipeline to create long-term value. 

"Together, the combined REIT is uniquely positioned to deliver results for unitholders as the owner, manager and developer of a high-quality portfolio of diversified assets," Johnson said in a statement.

In the new combined REIT, Morrison becomes the vice-chairman of the board of trustees while Johnson will become president and chief executive.

Using the Choice Properties closing unit price on February 14, 2018, of $12.49, the deal equates to a price of $53.61 per CREIT unit, a 23.1% premium to the CREIT closing unit price on February 14, 2018. 

The total consideration consists of about 58% in Choice Properties units and 42% in cash. CREIT unitholders will have the ability to choose whether to receive $53.75 in cash or 4.2835 Choice Properties units for each CREIT unit held, subject to proration. The maximum amount of cash to be paid by Choice Properties will be approximately $1.65 billion, and approximately 183 million units will be issued, based on the fully diluted number of CREIT units outstanding.

CREIT's board of trustees has recommended unitholders vote in favour of the transaction. Choice Properties' board has unanimously determined that the deal is in the best interests of Choice Properties.

Michael Markidis, an analyst with Desjardins Capital Markets, said Choice REIT wasn’t really on the radar of institutional buyers, but with the combined entity having a $2 billion public float it will become a viable investment vehicle.

"It’s only a matter of time it goes on the index. CREIT is an index entity and Choice is not because it did not have enough of a float," said Markidis, referring to S&P/TSX composite.

Markidis said while the new REIT will be more diversified, the aggregate investment in retail is increasing. 

"But this will give them a platform to grow the other segments (of the business)," he said, referring to office and industrial classes.

Amazon is coming to the GCA in 2018!

Posted Dec 13, 2017

Online retail giant Amazon to open warehouse facility in Balzac.  Click here to learn more.

Optimism growing in the energy sector

Posted May 23, 2017

‘We never had it so good’: Canadian investor Adam Waterous is an optimist about energy.  Click here to learn why